Deluxe Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report; the provided filing text does not give a clear set of Q4-only results.
Business context
Deluxe provides payment processing and treasury management, data-driven marketing, promotional products, and printed checks. Its strategy is to use cash flow and customer relationships from print businesses to fund growth in payments and data. Checks represented 32.9% of 2023 revenue. In June 2023, Deluxe sold its North American web hosting and logo design businesses; it also began transitioning payroll and human-resources customers to other providers, with conversions expected to finish in 2024.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $2.192 billion | $2.238 billion | -2.0% |
| Gross profit | $1.163 billion | $1.206 billion | -3.6% |
| Gross margin | 53.0% | 53.9% | -0.9 percentage point |
| Operating income | $160.8 million | $169.4 million | -5.1% |
| Net income | $26.2 million | $65.5 million | -60.0% |
| Diluted EPS | $0.59 | $1.50 | -60.7% |
| Adjusted diluted EPS (non-GAAP) | $3.32 | $4.08 | -18.6% |
| Adjusted EBITDA (non-GAAP) | $417.1 million | $418.1 million | -0.2% |
| Adjusted EBITDA margin (non-GAAP) | 19.0% | 18.7% | +0.3 percentage point |
| Operating cash flow | $198.4 million | $191.5 million | +$6.8 million |
| Free cash flow (non-GAAP) | $97.6 million | $86.9 million | +$10.7 million |
Interest expense rose 33.0% to $125.6 million, and the weighted-average debt interest rate increased to 7.06% from 5.19%. The effective tax rate was 34.1%, up from 22.3%. Reported net income includes a $32.4 million gain on sales of businesses and long-lived assets; restructuring and integration expense was $90.5 million, versus $63.1 million in 2022.
Segments
| 2023 segment | Revenue | Year-over-year | Adjusted EBITDA margin |
|---|---|---|---|
| Payments | $690.7 million | +1.8% | 22.1% (up from 21.3%) |
| Data Solutions | $238.8 million | -10.7% | 23.3% (down from 25.5%) |
| Promotional Solutions | $541.7 million | -3.8% | 14.9% (up from 14.1%) |
| Checks | $721.1 million | -1.1% | 44.4% (up from 44.0%) |
Payments growth reflected merchant-services fees and volume. Data Solutions revenue was reduced by business exits, partly offset by stronger data-driven marketing. Checks and Promotional Solutions faced declining product volumes, partly offset by pricing and cost actions.
Debt and liquidity
At year-end, total debt was $1.593 billion, net debt was $1.521 billion, and cash and cash equivalents were $72.0 million. Revolver availability was $240.5 million, producing reported liquidity of $312.5 million, down from $335.6 million in 2022. An additional $386.1 million of restricted cash was held for customers and should not be treated as unrestricted cash available for general corporate use.
Interest-rate swaps fixed the rate on $771.7 million of variable-rate debt; Deluxe reported that 78% of debt had a fixed interest rate of 7.0% at year-end. A one-percentage-point change in the weighted-average rate on variable debt was estimated to change 2024 interest expense by about $4 million. Debt maturities include $86.6 million in 2024 and $941.5 million in 2026. The company was compliant with its debt covenants at year-end and expected to remain compliant through 2024.
Outlook, commentary and risks
- 2024 outlook: Revenue of $2.14–$2.18 billion and adjusted EBITDA of $400–$420 million. Management noted 2023 included approximately $56 million of revenue and $26 million of adjusted EBITDA from businesses not expected to recur in 2024.
- Segment expectations: Payments revenue growth in the mid-single digits; Data Solutions expects about $27 million of revenue and $9 million of adjusted EBITDA reductions from exits, with mid-single-digit growth in the remaining business; Promotional Solutions expects low- to mid-single-digit revenue decline; Checks expects a low- to mid-single-digit revenue decline. Management expects segment margins to remain around stated 2023 ranges.
- North Star program: Targets $100 million of annual run-rate free-cash-flow improvement and $80 million of adjusted EBITDA improvement by 2026. Deluxe reported approximately $45 million of related 2023 costs and expects another $70–$90 million over the following two years. Savings and targets are forward-looking and may be offset by inflation, labor costs, or investment needs.
- Capital plans: 2024 capital expenditures are expected to be approximately $100 million. Management anticipated continuing the regular quarterly dividend, subject to board approval, and stated operating cash flow, cash on hand and revolver availability should fund obligations and operations.
- Key risks: Secular declines in checks and business forms; intense competition and technology change in payments; execution of cost-reduction and growth plans; inflation and supply or labor disruptions; variable-rate debt and substantial leverage; cybersecurity and service interruptions; regulatory and privacy requirements; and potential goodwill impairment. Goodwill was $1.431 billion, or 46.4% of total assets. No goodwill impairment was recorded in the 2023 annual test, but management expected the $7.7 million goodwill associated with the payroll and HR business to be fully impaired in 2024 as the exit proceeds.
- Contingencies and controls: The company said recorded legal liabilities were not material and identified no currently known litigation expected to materially affect its financial position, results or liquidity, while noting litigation outcomes remain uncertain. Management and the auditor concluded internal control over financial reporting was effective as of year-end; the auditor identified revenue recognition as a critical audit matter.
Most important facts for investors to verify
- Whether 2024 revenue and adjusted EBITDA guidance is achieved after the payroll/HR transition and other business exits.
- Whether North Star delivers its 2026 cash-flow and EBITDA targets, and the total restructuring costs and realized savings.
- Debt reduction, interest expense, 2026 refinancing or repayment needs, covenant headroom, and dividend affordability.
- Underlying trends in merchant services and data-driven marketing growth versus declines in checks, forms and promotional products.
- Goodwill and other asset recoverability assumptions, particularly given goodwill’s large share of total assets and the expected payroll/HR impairment.
- Cash-flow quality and liquidity, distinguishing unrestricted corporate cash from customer funds and other restricted cash.